Relating batch costs to product output consider lyco

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Relating Batch Costs to Product OutputConsider Lyco Brass Works, which manufactures Jacutaps, a line of decorative brass fau-cets for home spas. Lyco produces Jacutaps in batches. For each product line, Lyco ded-icates material-handling labour to bring materials to the manufacturing area, transport work in process from one work centre to the next, and take the finished product to the shipping area. Hence, material-handling labour costs are direct costs of Jacutaps. Because the materials for a batch are moved together, material-handling labour costs vary with the number of batches rather than with the number of units in a batch. Material-handling labour costs are variable direct batch-level costs.Information regarding Jacutaps for 2018 is as follows:Static-Budget AmountsActual Amounts1. Units of Jacutaps produced and sold180,000151,2002. Batch size (units per batch)1501403. Number of batches (Line 1 ,Line 2)1,2001,0804. Material-handling labour-hours per batch55.255. Total material-handling labour-hours (Line 3 *Line 4)6,0005,6706. Cost per material-handling labour-hour$ 14.00$ 14.507. Total material-handling labour costs$84,000$82,215LO 4Undertake variance analysis in activity-based costing systems.
FLEXIBLE BUDGETING AND ACTIVITY-BASED COSTING  257To prepare the flexible budget for material-handling labour costs, Lyco starts with the actual units of output produced, 151,200 units, and proceeds as follows:Using budgeted batch size, calculate the number of batches that should have been used to produce the actual output.At the budgeted batch size of 150 units per batch, Lyco should have produced the 151,200 units of output in 1,008 batches (=151,200 units ,150 units per batch).Using budgeted material-handling labour-hours per batch, calculate the number of material-handling labour-hours that should have been used.At the budgeted quantity of 5 hours per batch, 1,008 batches should have required 5,040 material-handling labour-hours (=1,008 batches *5 hours per batch).Using budgeted cost per material-handling labour-hour, calculate the flexible- budget amount for material-handling labour-hours.The flexible-budget amount is 5,040 material-handling labour-hours *$14 budgeted cost per material-handling labour-hour =$70,560.Note how the flexible-budget calculations for material-handling costs focus on batch-level quantities (material-handling labour-hours) rather than on output unit-level amounts (such as material-handling labour-hours per unit of output). The flexible-budget variance for material-handling costs can then be calculated asFlexible@budget variance=Actual costs-Flexible@budget costs=(5,670 hours*$14.50 per hour)-(5,040 hours*$14 per hour)=$82,215-$70,560=$11,655, or $11,655 UThe unfavourable variance indicates that material-handling labour costs were $11,655 higher than the flexible-budget target.

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